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Master Budget Questions

The document outlines a series of budgeting questions related to cash collections, production, direct materials, and labor for various companies. It includes specific requirements for preparing schedules and budgets for expected cash collections, production needs, direct materials, labor hours, and cash flows. Each question provides necessary data and asks for detailed calculations to support financial planning and management.

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Majid Gaming
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9 views2 pages

Master Budget Questions

The document outlines a series of budgeting questions related to cash collections, production, direct materials, and labor for various companies. It includes specific requirements for preparing schedules and budgets for expected cash collections, production needs, direct materials, labor hours, and cash flows. Each question provides necessary data and asks for detailed calculations to support financial planning and management.

Uploaded by

Majid Gaming
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Master Budget Questions

Question 1
ABC Company makes a product that is very popular as a Independence Day gift. Thus, peak sales occur in May of each
year, as shown in the company’s sales budget for the second quarter given below:

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another
70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale.
Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.
Required:
Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.
Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of
that date.

Question 2
A&H, Ltd., an Australian company, has provided the following budgeted sales for its popular boomerang for the next four
months:

The company is preparing its production budget for the second quarter. Based on past experience, the company
maintains end-of-month inventory levels equal to 10% of the following month’s sales. The ending inventory for March is
5,000 units.
Required:
Prepare a production budget for the second quarter; in your budget, show the number of units to beproduced each month
and for the quarter in total.

Question 3
Three grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in
western Siberia. The cost of the musk oil is $1.50 per gram. The budgeted production of Mink Caress is provided below
by quarters for Year 2 and the first quarter of Year 3:

Musk oil has become so popular as a perfume ingredient that it is necessary to carry large inventories as a precaution
against stock-outs. For this reason, the inventory of musk oil at the end of each quarter must equal 20% of the
following quarter’s production needs. At the start of the first quarter of Year 2, 36,000 grams of musk oil are on hand.
Required:
Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2. At the bottom ofyour budget, show the
amount of purchases for each quarter and for the year in total.
Question 4
The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter
for the upcoming fiscal year:

Each unit requires 0.35 direct labor-hours, and direct laborers are paid $12.00 per hour.
Required:
Construct the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is
adjusted each quarter to match the number of hours required to produce the forecasted number of units produced

Question 5
Garden Depot is a retailer preparing its budget for the upcoming fiscal year. Management has provided the following
summary of its budgeted cash flows:

The company’s beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a
minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate
of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans (or any part of its
loans) at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity,
assume that interest is not compounded.
Required: Prepare the company’s cash budget for the upcoming fiscal year.

Question 6
Asian Toys manufactures toys for South East Asia. Each unit of their product, Supermix, requires 3 cubic centimeters (cc)

of solvent H300. The company is planning raw material needs for the third quarter, during which peak sales of
Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:
a) The finished goods inventory on hand at the end of each month must be equal to 3,000 units of Supermix plus
20% of the next month’s sales.
The finished goods inventory on June 30 is budgeted to be 10,000 units.
b) The raw materials inventory on hand at the end of each month must be equal to one-half of the following
month’s production needs for raw materials.
The raw materials inventory on June 30 is budgeted to be 54,000 cc of solvent H300.
c) The company maintains no work-in-process inventories.
A sales budget for Supermix for the last six months of the year follows:

Required:
a) Prepare a production budget for Supermix for the months July, August, September, and October.
b) Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and
September, and for the quarter in total.

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